Podcast Episode 84 Transcript

Episode 84: Your Backstage Guide To Real Estate Investing With Matt Picheny

Are you ready to bring your real estate game to the next level? My name is James Prendamano. I'm the CEO and founder of PreReal and over the past 25 years, I've closed over a billion dollars in transactional real estate. Each week, a meeting with outstanding investors, investors, highperforming individuals and visionaries operating in the real estate space. These are the people that are actually out there in the real estate game right now. Getting It Done this podcast aims at bringing anyone's game to the next level. This is the Prereal Podcast welcome everyone to The Prereal Podcast. We're joined today, folks, I know we say this often, we have a treat, but we really do have a treat today. Matt Picheny is a real estate investor. He's a Tony Award winner. He and his wife author of the number one best selling book, The Backstage Guide to Real Estate. He's focused on developing passive income streams that enable investors to write their own story candidly, which is what we all seem to be doing nowadays and choose how they want to spend their time. Matt, thank you so much for taking the time today. I really was looking forward to this episode.

It's my pleasure to be here. Thanks. Such a warm introduction. I really appreciate that. Well, we don't have Tony Award winners on the show every day, so this is a treat for me too. Matt. So many folks out there today are syndicators, right? So many folks are in the business now that weren't in the business ten years ago, never mind 20 or 30 years ago. And I spend a lot of time doing homework on the guests on the show and different syndicators. I have to say I was pretty darn impressed with your resume and I thought that it was really neat that you've made such a transition.

So before we dive into the vast experience and the deals that you're involved in, I think it's up to 8000 units now that you've participated in. Can we talk about the journey from actor to producer to corporate America? You've got quite a resume and you've done quite a bit.

Yeah. Well, I started off growing up in Orlando, Florida and I moved to New York City to pursue a career in theater. I went to the American Musical and Dramatic Academy on the Upper West Side of Manhattan, graduated from there three days after graduation. I was off on tour doing a bus and truck tour around the country. Actually, I know that you're based in Staten Island. I think we actually did one of our shows in Staten Island. I think one of our first performances as we were going leaving New York, going around the country doing shows. And so I did that professionally for five years. I was in 15 different professional productions all across the United States and I started tinkering around with computers as a hobby. And this was mid to late 90s, 1996 97 when the.com craze was all the rage. You'll remember here in the city, it was just everything was booming. And I had taught myself HTML, and I ended up having an opportunity to do so much work instead of waiting tables in between jobs. I used to work at the Hard Rock Cafe back when it used to be up on 57th street, waiting tables in between acting gigs. I was able to actually work in a nice little office and do HTML and made good money and wasn't working in a smoky this was back when you could smoke in the restaurants, working in a smoky restaurant until all hours of the night. I ended up getting so much work. I was working from home, working two shifts, if you will. Work kept coming in.

So I got a second desk that I put in my apartment in New York and would have someone come in and help me with all the work. And then more kept coming in, and there was just no more room in my little apartment for another desk. So I got an office space in New York down in the Chelsea area of Manhattan, and created an office. And I had my own boutique agency for a number of years. And then 2001 comes along and the.com bubble bursts. All of my clients were either going out of business or the larger corporations that I had just were not spending any money on digital efforts. And my business was imploding. I mean, it was bad. And it just so happened at that time that my landlord calls me and says, hey, you've got 90 days to get out of the apartment you're living in. So here I was needing to find a new place to live, not having any job to speak of, really having my own business that had terrible. The financial records were terrible, and I ended up getting a job at one of my clients, Showtime. The cable television channel, was a client of mine. They offered me a position in house. I went in house there and was looking for a place to live. I wanted to rent an apartment on the Upper West Side, which is where I had gone to the AMDA. And it's a place that I absolutely loved. And I was looking couldn't really find anything that I found affordable. And at that same time, my sister was living up in Washington Heights. I'm sure you know, it's about 30 minutes further north. And she saw an ad on a bulletin board for a co op apartment to buy. And so I ran the numbers and it made sense. My monthly payments would be a little bit less and I'd be gaining equity in something. So I had always heard was a good thing. So I made my first purchase. I purchased a co op apartment up in Washington Heights. And a little over two years later, I sold that property and saw my initial investment more than quadruple. And yeah, it's exactly the words that came out of my mouth. I said, wow. And then the second thing I said was, how can I do that again? Because I was like, there's something to this real estate thing. And that's when I really wanted to get involved in real estate. I took the profits from the first property and then bought something on that Upper West Side where I wanted to live and was on the Hunt to find an investment property. And the first investment property that I bought was actually a piece of land up in northwest Connecticut. It was really initially to sort of be a second home for me, someplace outside of Manhattan that I could actually have more than I think I was in a 600 sq. Ft. One bedroom apartment. So I have a little bit of space. What I did was I bought raw land and then eventually developed a house there, and it actually became a vacation rental. And so I would rent that out. I learned a ton. First off, I learned what real estate is really made of from the ground up, because we literally I mean, it was a lot. It was a one acre lot that I bought, and we knocked down the trees, dug a hole, put a foundation, the whole nine yards. And so I really learned from the ground up what it takes to make real estate. And then dealing with tenants, dealing with leases, and then the really fun stuff, all the accounting. Right. And learned about depreciation and all those kinds of things. And that what was initially going to be a second home for me. A vacation home or country house for me, actually, is what set me on the path to where I am today, because it taught me a lot of the basics. Fast forward another ten years of doing that.

I was continuing to work in corporate America. I don't know how corporate it was. I was working in advertising agencies in New York City, but climbing the corporate ladder nonetheless. And so I did that. I met my wife. We got married. We had a kid while she was pregnant. We decided that the 600 sq. Ft. One bedroom apartment on the Upper West Side wasn't quite going to cut it. We could make it work, but thought it might be a little easier with another inhabitant of the house to get a new place. So we moved to Brooklyn, and we ended up through that search process, I found that the numbers made a lot more sense. If I found a place that was a two family versus a one family and rented out one of the units, and it was a lot easier to manage. I assumed it would be a lot easier to manage than the rental that I had. That was 2 hours away in Connecticut. This way, it was just someone right above and right below me. So we bought a townhouse nowadays on the Internet, they're calling it a house hack. But I didn't even know that that term existed back then. I just knew, hey, my tenant is going to be paying me X amount of rent, and that's more than half of what my mortgage payment is. So it looks good to me on paper and it was great. It was fantastic. Then my wife got approached completely out of the blue with a job opportunity in Miami, Florida. So we moved to Miami. And that's when I moved from doing real estate as a hobby for ten years into doing real estate full time. And so ever since then, I've been syndicating apartment complexes. It's been a little over six years now, buying large apartment complexes, not in New York City, although I wish I could find one where the numbers made sense. But most of the stuff that we're doing is in the south, a lot of properties in Kansas City and all over Texas. So I have to ask somewhere along the way here, you won the Tony, right? Or did you win two Tony Awards? We won two Tony Awards and we just won them over the summer. So real quickly, we were in Miami for two years, and when we were in Boston for four, she got approached again out of the blue with a job opportunity. And we had started investing in Broadway shows back when we were living in New York. We invested in a number of shows, including Hamilton, which was a big success. And we've also invested in a number of flops as well. But then while we were in Boston, we got involved in a couple of shows in a big way as coproducers. So those two shows were Mulan Rouge and David Byrne's American Utopia, both of which are currently running on Broadway. And so they were running on Broadway before the pandemic, the pandemic came, but then the Tony Awards were finally happened this past summer and we just moved back into the city. Just prior to that, we moved back in August, and I think the Tony's were in September and we won two Tony Awards. David Byrne's American Utopia. It's David Byrne, the lead singer from the Talking Heads. Like, awesome show. If you haven't seen it, I highly recommend it closes, I believe, in April. And so you want to go see it? It's amazing. And it wasn't eligible for a traditional Tony because it's not a musical, but it got a special Tony Award. And then Mulan Rouge won ten Tony Awards, including best musical. And so we got a Tony for that one as well. So it's a really cool, super exciting. I had always dreamed of getting a Tony when I was younger because I was in theater. I loved it, but I always assumed I would get it for acting, not as a producer. But you know what? I'm thrilled. I'm tickle pink to have one for anything. So it's fantastic. Well, Congrats on the success. It's pretty remarkable. You reference the co op and subsequently house hacking. It's funny that everything has a term now, the bird strategy and house hacking. And as you're going through this process, you hear the terms. Do you know what this is? And do you know what this is? And at first you're like, well, not quite sure I do. And they explain it. You're like, oh, we've been doing that for 25 years, right? We didn't have a neat term for it, but yeah, we know what that is. Look, I used to do websites on the side for people or even the house.

The Connecticut house was like a thing I did on the side. And everyone's calling it a side hustle now, right? There was no term. You just did stuff. You did it right. You went out and earned. So was there any other real estate influences, or was it that first co op where you quadrupled the money? Was that the hook for you or were there other in your life? There was other influences, 100%. My father was a real estate agent. At one point in his life, he ended up getting involved in food service, and that's where he spent the majority of his career. But when I was a little kid, he used to do real estate. And I actually talked about in my book how when I was I have a memory as a little kid being with him. We went to his house and there was this disgusting algae green pool. And he was putting in the chemicals and scrubbing it down to turn it into a nice pool. And he told me that we owned the house along with his business partner. And I was like, we have a house, we live in a house. I was like seven years old at the time. I didn't understand. And he explained to me, well, we own this house and we're going to give it to a family, and they're going to pay us rent and we pay mortgages and stuff, but we will make some extra money for it. I don't know how long my dad had the property for. Unfortunately, he passed away a little while ago, but I think he had it for about a year. And that was it. It wasn't like he was a prolific real estate investor, but I do think that that experience a long time ago just kind of planted a seat in my head that, hey, you can buy something and then you can rent it out and make a profit. But he never did any other real estate investments that I know of since that time. Remarkable. The things that imprint on us as kids that one way or another play pretty profound role as we grow up and decide what we want to do with ourselves. Right. So you're now full fledged, full time rocking and rolling 8000 units. As a GP, I thought it would be. So let me correct you just for 1 second because I understand it might be a little misleading and I just want to be really clear. So it's a little over 6000 as a limited partner. Got it. And a little over 2300 as a general partner. Why don't we take a minute to explain that to the audience? Sure. Yeah. No, I think that's a great thing to do. So I get involved in real estate syndications. I found out about syndications when we moved to Miami and it blew my mind because we had the house hack the townhouse that I had in Brooklyn. And I knew that it was an amazing deal, what we got and I wanted to do more of them. The problem was you can't buy anything in Brooklyn that's less than seven figures. So I would need two, $300,000 in capital just even for a down payment. I didn't have that kind of money to just keep doing that right. I just done one of them already. And so for me, it was like, wow, how do I do this without finding some really rich benefactor of some sort? And so I kind of just gave up on it. My plan before my wife got the job opportunity in Miami was to continue working in corporate America doing my advertising thing. I was a vice President at an advertising agency. I made a decent amount of money and I'd save money for the next five, six years and then have enough for another down payment on another place. That's kind of where my head was at. When we moved down to Miami, I decided to go full time into real estate. That's a whole other little story we can get into. I talk about it in the book. But I decided to start doing real estate full time because that's really where my passion was. And that's when I found out about real estate syndication. It was within those first six months of going into real estate full time. And I was like, wow, this is amazing because what it is is a bunch of people can get together, a bunch of investors, pool their capital together and then get these otherwise unobtainable assets. I mean, the first deal that I did as a general partner was a $10 million property.

We needed $2.6 million of capital. And I don't have that kind of money sitting in my pocket. I just don't. But what I was able to do was get 40 other people together and we were all interested and people put in 50K, 100K, 250. Some of these high rollers can put in even higher numbers. But we all pulled that money together and we also pulled our balance sheets together to qualify for the loan. And so then we were able to all invest in that. Before I did that first deal as a general partner, I was a limited partner. And so the difference is, as a limited partner. When you're doing these syndications, there's someone who is considered the sponsor. They're the person who's putting the deal together. And by the way, it's usually not one person. There's usually a couple of people doing this together, and they will put the deal together. They have relationships with brokers, with property managers. They find a deal, they underwrite a deal, they'll get it under contract. Then they will go to their investor group because they have hopefully amassed a database of investors so that they can take these deals down and say, hey, investors, here's a new opportunity that we have. We're buying 300 units in Dallas, Texas. And the return is you're going to double your money in five years. And during the whole period, during those five years, you get 10% each year of your initial capital in cash distributions. And it's very tax advantage. We're going to do bonus depreciation, whatever they tell you the whole thing. And then the investors put their money in. But as an investor, you're a limited partner. I did the first five deals that I was involved in when it comes to these multifamily syndications. I was a limited partner in. So I was taking my money, trusting in the person and trusting their underwriting. And I've learned quite a few things about how to look at those, which is why I wrote this book, which I'm sure we'll talk about at some point. But the book is to really help people who want to passively invest, kind of know the ins and outs. And so I went ahead and put the money in these deals, and then that's it. As a limited partner, you're done the general partners who are the sponsors, they will go ahead and they will run the deal. They make the decisions on a day to day basis. Hopefully the deal goes well. They send you money, and then at the end they sell it and you get a nice big fat check, right? If all goes as planned, what I wanted to do, based on my real estate experience and based on my project management experience for the 18 years that I was in corporate America, in advertising, I was a project manager. I'm a PMI certified project management professional. So I'm really good at managing people and budgets and timelines. I'm doing the same thing that I did there, but just applying that to real estate, which had been a hobby of mine for ten years. And so I always wanted to be a sponsor. So as a sponsor on the deal, I'm doing all the work. I'm finding the deals. I'm getting them under contract, putting nonrefundable money down in a lot of cases, going to my investors, saying, hey, here's the opportunity, getting that all together, closing on the deal, and then managing the deal. We have third party property management that we use local property management in the areas where we're investing. It seems like at least at this point. Staging the game make a lot more sense than vertically integrating. I'd rather be with someone who's got 30, 40, 50,000 doors under management because they have a lot more pull with different vendors, because they give a lot of work to these vendors and they can make some magic happen. So we work with third party property management, but on a weekly basis. I'm an asset manager and so I'm checking in with the property managers, making sure that everything's running smoothly, checking the KPIs, all the stuff that I did as a project manager in the advertising world, and then we communicate that information with the investors on a monthly basis, actually send out distributions, usually on a quarterly basis, and then our plans to hold the properties about five years and double people's money in that time. Real estate market has been really good to us lately. I mean, I picked good properties. I managed them well. But I cannot take credit for the fact that real estate has been on a tear for the past eight to ten years. So we've been exiting our properties in about two to three years instead of holding them for five. But I always tell the investors, hey, look, we're looking to hold this for five or six years. I don't know that this great run up in the real estate market is going to continue.

Maybe it will. The underwriting that I'm doing, I'm saying I think real estate market is going to soften up. So if we're buying something at, let's say a five cap, the way the cap rates work, I know a lot of your audience knows, but some of them might not. As cap rates go up, it means valuations are going down. Our latest deal in Dallas, we're buying at a 3.9 cap and things are going around a four cap in Dallas right now. And we're projecting that we're going to sell that in five years at a 5.4 cap because we know historically when we look at those cap rates in that market, there somewhere between five and a quarter to five and a half. So we felt 5.4 is a very conservative approach to what a sales cap rate might look like five years from now are the liquidation events along the way. That's the only liquidation event. We will have cash distributions because all the properties that we buy are well, the 99% of the properties that we're going to buy are stabilized assets, right. So they're 90% occupied or more for 90 days or more. So they're cash flowing from day one. We're doing a value add, so we're adding things where we're fixing up, carrying deferred maintenance, improving curb appeal, renovating unit interiors. A lot of times we're buying like 80s product. And look, I grew up in the late 70s and early 80s. I love the 80s, but I don't want my apartment to look like the 80s. So I go ahead and we upgrade them and we're buying properties where the rents are way below market so we can raise the rents up to just the mid level of the market and really force some nice appreciation on the asset and have some good cash flow coming right off the bat. So I'm happy to hear the liquidation event is limited to the sale. Folks, you've heard me talk about this more and more and I'm going to continue to raise the temperature on this. There's a saying, I've never seen a pro forma that didn't work right. On paper, these things all look amazing, but we're seeing more and more Matt really disconcerting offerings where they are predicated on so many things happening that those of us who have been around the business long enough have seen what a bad market looks like. And we understand what can happen when capital dries up. Right. And there's not always going to be a line of bridge or what I call mid cap lenders ready to knock the debt out. And we're just finding that people have to be really cautious and look for folks that have done their homework and are not depending on we recently looked at one that had two liquidation events over the next seven years, plus a sale in the 7th year, banking on 30% rent appreciation year over year for the first two years. And then it was two refinances along the way. Those were the liquidation events, obviously, but they were not accounting for increase in expenses, even though inflation is already at 7%. And there's a lot of fancy terms out there. Folks lost the lease, which is a very important thing and a very key metric to look at. But yet you still have to stick to sound fundamentals, in my opinion, my humble opinion in real estate, this thing is a cycle. It goes up and it goes down and we're seeing a lot of signs that are pointing toward we're getting more bullish. We want to buy more real estate now, believe it or not, but it's got to be the right deal, right? There has to be enough of a conservative approach. We're not seeing many that are talking about buying at 3.9s and selling at 5.4%. That's great. That's a really conservative, smart, safe approach. We're seeing buying a 3.9% rent going up 70 some odd percent over the next five or six years, expenses not going up, commensurate to that liquidation events and selling at 3.5%.

And that's scary. Yeah, I think that there's well, that's why I wrote the book, to be honest with you, one of the things I talk about in the book is refinances and how I never invest in a deal that's got a refinance underwritten in the pro forma in year three. I see all these deals nowadays. We're going to refinance in year three. How do you know? Listen to what Matt is saying, folks. What's the interest rate going to be three years from now? What are the cap rates going to be three years from now? I have no idea. Now, I'll tell you, I invested in a deal. I am tickled pink. Okay. Let me tell you, I've invested in 25 deals as a limited partner. I have one deal that right now is going to do a refinancing year three. It happens to be in Arizona. This deals knocked it out of the park. When I invested in it, it was a five year old. Now it just so happens the market has been great. It's been very kind to them. The property has been doing fantastic. We're going to do a cash out refinance and have a nice profit and still own the property, which is wonderful. I have no cash in the deal left and I'll still get probably like 5% cash on cash. They'll hold onto it for another four or five years and then sell. Right? It's awesome, right. But those things I will not. And I don't advise that anyone invest in a deal that is predicated on that refinance. And then if you take the refinance out of the underwriting, the deal falls apart, deal blows up. So the danger point that we continue to caution the listeners on is when the debt is structured on a deal today, these two to three year deals exactly what Matt is talking about. We've seen markets where I don't care what the value is, I don't care what the cash flow is. There is not institutional debt available. And that's by design. By the way, folks, these things line up purposely. And when you're at the end of that two to three year Mark, one of the syndicators I was challenging recently said, well, what's the big deal? So if it doesn't cash flow the way we think it's going to cash flow, you're not going to lose the asset. And I said, with all due respect, if you have two to three year interest only mortgage that you're securing today and you don't have the ability to convert to a permanent all my deals now I'm looking for the ability to convert. I'll pay for it today so I could sleep tomorrow when that note comes due. And the big guys have put their hands in their pockets and they're watching the small to midcap banks panic because deposits are lowering, which means they're falling out of compliance, which means they've got to get the debt off their books. They don't care if it's cash flowing. They cannot refinance you by charter. And if the big institutional debt providers are not going to provide that safety net for you, where are you going in two to three years? And that does lead to not just an asset, not cash flowing, that leads to you lose the deal, you lose your property. So again, to be clear, folks, we're more bullish now maybe than ever. We're taking advantage of the low rates because we don't think that they're going to be here the last. We're doing deals, but we're doing smart deals like Matt's talking about, be really careful. And it doesn't mean if you come across a pro former that has a refinance or liquidation event that it's a bad deal or a bad actor. It just means pay close attention. And that's why I wanted to talk a bit about the book, because the book is a bit of a how to guide for folks that are entering the market. So can you spend a couple of minutes on the book, Matt, and explain to the audience the value? Sure. So I think I mentioned in my story that I lived in Boston for four years just back in the city. So happy to be back in New York, by the way, loved Boston. Don't get me wrong. Boston was awesome, but glad to be back in New York. Which field, which is home, right. So when I was in Boston, I ran a meet up group there, and it started off really small and was growing and growing and growing. And one of the things that I was trying to do is tell people about my story and how I learned and get different experts come in and talk about different things and get people to know that this thing called syndication exists and you can't and invest out of state and do really well because a lot of the people who would come it was a multifamily meet up that we had started. A lot of them had like a triple Decker and Worcester. They weren't buying these large apartment complexes. So people started to open up their minds as they got exposed to these things and would be interested in maybe investing in their first syndicated deal and would come to me and say, hey, Matt, like, I know two thirds of your portfolio or limited partner, one third of your general partner. You know how to run these deals. You run the meet up group. Would you look at this deal and tell me if it's any good? And so I would be happy to sit down with people and take a look at the underwriting. We take a look at the investor deck with them. And I never tell people whether they should do a deal or not. That's for them to make the decision. But I would point out things like, oh, well, they've got 30% rent growth every year for the next ten years. Like that seems like it might be very aggressive. You should ask the sponsor why and find out how they're justifying that. So I was happy to do these things. I love it. I love talking shop. I mean, I'm having a ball right now just talking to you about real estate stuff. It's my favorite thing to talk about. But I was running out of time. I just didn't have all the time in the day. More and more people kept asking me to do this. So I wrote it down, what it was like a handbook that I had created, and it was 60 pages of the most boring, driest thing you've ever read in your entire life. You would love it, and I would love it.

But most people it's like chewing cardboard, right? It just was all technical jargony. And I took a look at the book, and I was like, this is no good. I got to make this palatable. I've got to make this something that people can read and understand. And what I did was I took all the information that was in there, and I pulled it out and put it across my narrative. So I tell my whole journey, my story, and I teach or share, I should say I share with everybody the Keystone concepts that I learned along the way. So I have 18 different Keystone concepts that I learned. The story about my dad in the pool is in there, and all the different stories that we've talked about on this podcast and more in that book and teach these concepts. And then there's 60 different real estate definitions throughout the book. There's all these different terms they're defined within the book. And then there's a glossary at the end which serves as an index, so you can go back and read the story around it. And so that's basically what the book is. It starts off with me buying that first apartment up in Washington Heights and defining that's when I learned what the difference was between an asset and a liability. And then at the end of the book, I'm doing an air rights deal and a 1031 exchange. So it gets a lot more complex and sort of everything in between. And it talks about the shows and me meeting my wife and having the kid. I mean, it's a memoir. It is a live story. It's got a lot of fun stories and cool stuff in there. It's very entertaining. I tried to put a lot of humor in there because real estate can be a dry subject. Right. I didn't want this to be like another textbook that someone's got to read. So I have a lot of friends who've read it just as a book. It was kind of a cool book. I mean, I learned a lot, but I enjoyed reading your story. So that's what the book is for people who are interested in investing in real estate and investing in syndications. It gives you, I think, a really good primer on what syndications are, the different types of investors, like sophisticated versus accredited and 506 B versus 506 C, which are different types of ways that you can set up the syndication. It gets into some of the weeds and the technical stuff that people need to know. But in an easy to read fashion. Yes. And for those of us that are looking to if participate as LPs, that's the foundation, folks. We still should have some base level to advanced level, really depending on the appetite of what product you're getting into. So you can understand these performers again, remember, the performers are built that way for a reason. They're made to look a certain way because that's what the requirements are to get the deals to underwriting. So we have a book club here, Matt. So we have talked about it. We're going to be adding this to our roster. We have one more ahead of us, and then we're going to be doing the book and book club. Thank you. I appreciate that. Well, we appreciate that. Like you said, there's books that are kind of heavy and just laid in with systems, and we tend to opt for after we do a heavy book like that, we try to mix in ones that have a story. And we're doing more and more investing, as I had shared before we started recording. And we're trying to inspire our team to do more and more investing. So we thought it would be a fun way to start that process in a formal way and educate the entire team here on what we do on the other side of the table. So we appreciate having the opportunity to read the book. And again, Congrats on it being a best seller. Thank you. I want to talk a bit about where you are investing, what markets are you in and how are you selecting those markets. We're selecting markets in the south, the Midwest. So as a sponsor, it's a little bit different with the sponsor versus a limited partner. One of the things I like about being a limited partner is that it allows me to invest in areas that I don't know very well, where there's another person who I've gotten to know and vetted. And that's the thing in the book. The back section of the book tells you how to vet the sponsor, the market, the deal. And I have the four fletchable factors, which are the numbers that people can change on the underwriting to make it look better than it really is. But I like being able to invest in a diversity of operators in many locations. They tend to be in the center of the country and not on the coast, although I have some stuff in Florida. I have invested in Atlanta, but tends to be in the middle of the country. And I do believe and this is maybe counter to what a lot of people think. I think you can invest in almost any place in the United States when you're looking at a larger MSA, because it really is. There's the old joke. Right. What are the three most important things in real estate? Location, location, location. Right. And it really is about the location. When we do our deals and we're presenting a deck to investors, we talk about the larger MSA, then we talk about the sub market in which the property is located and then we go five, three and 1 mile on that property. And I think that there are a lot of places in almost every large MSA in America where you can find specific areas that are fantastic places to invest. And maybe some of that comes from living in New York City, right. Where everything is blocked by block. I'm telling you, I live in a place right now. I don't know if you can hear any of the construction. They're finishing up construction right now adjacent to my building, a beautiful, huge luxury, high rise, $5 million apartment. I mean, big place, $5 million per unit, literally. At the end of the block, at the other end of the block, there are housing projects. Right. And that's the way New York is. Right. It's very block by block.

I think the same thing about it anywhere. If you can find the right pockets to buy, you can do very well. Now, we've been investing in Kansas City. We've been investing in a lot of areas in Texas. And the reason why is we see a lot of employment growth in those locations. Employment brings people brings demand for housing. Right. And so those fundamentals are there. But there are bad parts of Kansas City and bad parts of Dallas and Houston that I would not invest in. Right. So you have to get really local. The thing that I like the first place that I ever invested in, first deal that I got is phenomenal. And I think the reason why I was able to get it as a newbie just coming in was it was completely off the radar. It was in a town called Lawrence, Kansas, which, by the way, the secret is out. A lot of people have bought things there since. And so I don't know if it's so great anymore. I mean, I still like it. It's a great town. It's a College town. It's between Kansas City and Topeka, and it's where Ku is. So if you're into basketball, which I'm not really. But the Jayhawks are there. They're usually making in the Sweet 16 for the March Madness. I did go, though, to a basketball game there, and it was amazing. The crowd was electric. I mean, it was really cool. But that town is a small town. It wasn't really on the radar. I found a place built in the early 80s had been mismanaged. The person who built it sold it to the group that owned it when I bought it. The group that bought it when I bought it, the group that owned it had it for twelve years and had not spent a dime on the property. So the sidewalks, it was a portfolio of two properties. The sidewalks at one of the properties was literally reduced down to rubble. There was like no sidewalk. That was the first thing that we did was we poured sidewalks, and the residents were thrilled to have someone coming in and fixing up their property. The rents were way below market. We brought them into the middle of the market a little lower than the middle of the market. We had a problem with the property. The problem was we did not meet our year one cash on cash returns that we promised the investors. And the reason why was we assumed a certain amount of attrition that you would have where people would leave, and we would then renovate the unit. Nobody wanted to leave. We're fixing it up. We gave investors. I think legally, I'm not supposed to discuss all the exact numbers we gave. Very nice cash distributions, just not quite as high as we wanted.

By the way, we sold the property a little over two years later and blew our projections out the water. So it was all good in the end. But at the beginning, it was a little bit of a slower start because everyone wanted to stay there. But these properties, a lot of them are neglected, and we can go in. This was a market that did not have huge employment growth, did not have huge population growth, was not on the radar. I mean, they had like 1% population growth every year for the past 100 years. And the projections were like 1% population growth for the next 100 years, right. Every year. And so not something that comes up on people's radars is, wow, this is a hot area that I got to go in, but that didn't matter. It was a nice, stable place. We found a good property with great property management, and there was a value add opportunity. We could go in there and fix up the property and make it look decent and bring rents up to the norm of the market. And we did exceptionally well. So as an investor who's done this for a long time, those are the issues you want to hear about, right? If you didn't hit your marks because you were embraced, you know what you have, right? When you see crumbling sidewalks, you go, oh, I think there may be an opportunity here. And having been through these things, I fully understand what you're talking about. And I agree that there's value in places that not everyone is looking right now as the GP or as the sponsor. How many markets are you focused on? We're primarily focused on two markets right now, okay? We're primarily looking in Kansas City and Dallas. And part of that has to do with the relationships. Once you get into a market and you've done deals in the market and the players in the market know you, it gives you an advantage, a competitive advantage. The last deal that we took down and down, well, we're about to take it down. Fully funded, ready to go. We're closing in a couple of weeks. That deal, we were not the highest bidder. We just weren't. But the seller knew us. We've known the sellers for years. They know that we're good people, we're ethical people. We're not going to retrain on them or do something crazy at the end. And that will close. And so for them, it was work to get a few hundred thousand dollars left on the deal for that Assurity of close now that they're working with good people. And so that's an advantage. Sometimes we get an advantage where, look, I have a property right now in Kansas City that I'm selling. The broker just sent me over financials on a new property. Now he's going to be bringing that to market. He's got his team working on a marketing package, but I'm taking a look at it a few weeks ahead of time. The last deal that we did at the end of last year, same sort of situation, different broker where a broker shot us some financials on something ahead of time while his team was working on the marketing deck. We ran the numbers, we put together an offer, and we were able to present an offer to the seller the day that the marketing package hit the markets. And the marketing process goes on 30 to 60 days, depending on exactly what's going on. We gave them an offer, but we were like, hey, here's our offer. It's good for 72 hours because if you're not going to take this, this is really the most that we can pay. It's not going to make sense for us to pay more. So we're just going to move on to another deal. And it was right around the number that they wanted. So then they just took it and we signed an agreement and got the property. And so having those relationships is really key. And so we have those relationships in those markets. And so we're able to get some more traction in those markets. But there are other markets that we like that we look at, but those are the ones where we've made the most headway. Are you focused really on just multifamily? Are you contemplating or are you involved in any other type of deals, commercial or mixed use or self storage or whatever it may be? I don't know about self storage or industrial or office space, if there was a trusted partner who wanted me to come on board because they feel that I can add some value to their deal and they had some experience in that arena, something I would definitely entertain, but it's not really my focus. What I would like to do is get involved in a new construction deal with someone who has some experience with that new construction multifamily. That's something that has been on my radar, maybe because I built that house a long time ago up in Connecticut and I'm like, okay, well, it's just a few more units, right? But I've got involved in some new construction projects as a limited partner. So I've learned a lot. We've been buying some land and doing entitlements and things like that and then start going vertical. So I've learned a lot about it and put some money into it and made some money from it too, which has been nice. And I'm looking for possibly an opportunity to partner with an experienced partner who's done that before and maybe get involved in ground up. The ground up developments I've been involved in have been multifamily with commercial space on the first floor. And so that's something that I'm interested in doing. If you can get some nice retail or restaurant or whatever on the first floor and then do residential above, I like that. I like that idea. And so that's something that we may do in the future. And you can smash if you hit the ground up stuff, right? You could really do well on those deals. So good luck with them.

It's becoming more and more difficult to invest in our own backyard, which has been tough. But for us, candidly, the political climate is something that we're taking a hard look at now. In every SWOT analysis, we have no choice but to take a look at Tenancy laws and what's happening on the ground. Are you guys looking into that and are you finding that as well? It is something that we do think about. And you'll notice that the places that I mentioned tend to be sort of a little more of red States, right. Regardless of what your own personal views might be, whether you're conservative or Liberal. The bottom line is if you have a problem with a tenant and it takes two years to evict them, it's difficult. But I just want to be really clear about this, though. If you go to my website, you'll see one of my main initiatives is about reinventing property ownership as a positive for communities. And every deal that I do has to be a win win. That's a win for the residents of the community. It's a win for the staff and then a win for us as investors. This is not a charity. We are in this to make money. But I think that you can do well by doing good. You can be an ethical business person and still make a very nice living. We work very hard to keep people in units. Number one, it's the right thing to do. You don't want to kick anybody out. Number two, it also is good for the bottom line. The largest cost that you're going to have on these things Besides property tax, is the turnover cost, right. It's a very big cost. So it does affect the bottom line. And so we have been able to precovid and especially during COVID work with our tenants when they do have financial problems, get them assistance if needed. One of the greatest things about we have a lot of properties in Texas. And so in Texas, if we need to, we can evict people relatively quickly and gain possession of the property if we need to. But they had an amazing Texas rent release program where we were able to get for almost every single tenant get their rent paid during the Holcova crisis. Right. So it's been good. But if you are in a place that makes it really difficult to evict people and look rent control. They tried rent control in Boston for a number of years, and they abandoned it because it actually made the home situation worse for lower income. It does not help. What happens is the landlords stop taking care of the properties. It's not the way to solve it. You could solve it through subsidies, through tax credits. There's a lot of other incentives and ways that the government can help incentivize property owners to have affordable housing. And when I was in Boston, I guess I'm technically still an ambassador for a company called Karatos. It's a nonprofit that's all about creating permanent housing for homeless people, dealing with vets and battered women and people who had substance abuse issues. And it's a cause that's near and dear to my heart. And there are ways that we can do that and move society forward without regulation that actually hinders that. And I feel like a lot of times people who are making the laws don't understand exactly how the business works.

And therefore, while they're trying to do a good thing and I commend them for that, unfortunately, it's not going to get the results that they want. Yeah. Unfortunately, much of the legislation is well intended, but it doesn't translate. And what happens is we've seen it firsthand. We used to have a very robust rental division here, and we did it right. We've always handled things with the absolute utmost level of ethics. And the industry took its hits and in many cases, well deserved hits. But a caricature kind of was built of the big, bad landlord and the big, bad real estate agent or broker, and a lot of the good folks that were in those markets just up and walked out. And we saw as the litigation got so pervasive, we said just the economics don't work here anymore. And as we stepped away, we saw the folks swoop in that were the last people that you wanted handling those types of things. Exactly. Yeah. So I'm really happy to hear that you're going beyond the numbers because it's so important and the community will pay you back if it hasn't already tenfold. When you work that way and you build a reputation as you're building now, it always comes back around and you have to be an active member and a good steward of the community. I'm a huge believer in that. So I'm really happy to hear that that's part of the passion for you, because there's not enough of us that are talking about that, Matt. There's not enough of us out there that are talking about the things that we're doing. And it does have that caricature of the evil landlord. And that's not who all of us are, right. 100%. So before I let you go and folks, we're going to, of course, as always, have all the links down below. But Checkmat's blog out. He's got a great blog, informative, direct. If there's questions about terms, it's the place to go because he does slow it down and walk you through a really nice job on the blog. What are you seeing in the next couple of years, Matt, in the markets? We're going to soften up here a bit. I don't know. I really don't know. My Crystal ball is hazy. And so what I've always done and what I continue to do, it's funny because you were saying something, we have a very similar mindset. So the Keystone concepts in the book, Keystone concept number five is cash flow is King. And I talk about, like you said, markets go up and markets go down. Right. And so as long as you have cash flow, you're good to go. And so that's really the main investment thesis that I base everything on is just having that cash flow. Yeah, we want to have that liquidity event at the end. But what if we can't sell five years from now? Can we hold onto the property longer? As long as we've got that cash flow, we can make the debt service. That's the most important thing. So I mean, I don't know. Interest rates are going up now. I think they probably will continue to go up. I think we're probably going to have inflation. I mean, we've been printing money for ten years like chickens are going to come home to roost at some point. But I also thought this was going to happen seven years ago. You know what I mean? I don't know how long this is going to go on for.

We do seem to be seeing some inflation now, but maybe the Fed raises rates for a little bit and then all of a sudden everything's fixed and then they start bringing them back down. Who knows? I don't know. And so what I do know is that I don't know. So if I feel like if I'm investing in a cash flowing business, which the businesses I choose to invest in our apartment buildings and that's producing profits, then I'm in good shape. And so that's the way that I approach it. And then I do the underwriting really conservatively saying, okay, we're going to say things are soft enough. We're going to say rental growth slows down. We're going to say vacancy goes up. All those kinds of things just to be conservative. Lately I've been wrong. Lately I've been very wrong. And that's why we've been able to exit our deals in two years, because we hit our numbers and we're like, okay, this is great. Let's take this money off the table and move into another one. But I don't anticipate that that's going to continue. So folks, bears, Bulls and pigs and all pigs get slaughtered. I love the strategy. Is there room in the deals that you're structuring for, like exchange money and Oz money? We have not at this point done any opportunity zone things. So, no, it wouldn't be any type of thing if you're looking to take advantage of that. Exchanges are hard to do with the syndications. They are possible. You have to set everything up as a tenant in common. So it would be a tick and one tenant in common being the entity that's doing the 1031, and then the other entity would be the syndication. I've always had concerns around conflicts of interest on doing something like that. If I was going to end up doing it, I would need to talk with people who've done it before because

I've always wondered, well, what if the syndication meets its goals? But the entity that's got the 1031 and doesn't want to sell for one reason or another? How do you resolve that? Because you don't want there to be any bad feelings. So I'd have to work through that. There'd have to be some sort of agreement on that. Also, because of the legal Hoops, there's additional legal Hoops that have to be gone through. From what I've heard anecdotally it really doesn't make sense to do 1031 into one of these syndications unless the 1031 is going to be a minimum of a million dollars. So I've just never had anyone exchanging a million or more who's been interested in one of my deals. But it could happen if someone came to me and was like, hey, I got 2 million I need to exchange, I would entertain the conversation and try to make it work out. Yeah, well, I only brought it up because with the market being hot, it's becoming more and more challenging to source deals. Right. So we have investors all the time. I'm in one personally now. It's a small exchange, but nevertheless, it's not small for us. We have 600,000 we need to shelter, and it's hard to find a place. So the chapters ten and eleven in the book talk about the air rights deal and the 1031 exchange is all one biggest, most creative deal I ever did. I sold the air rights above the building to the new construction that's going on next door, and 1031 that money, and I wanted to put it into a syndication. It was only a half a million dollars and there was nowhere to put it. So I ended up buying a six unit property in Kansas City. And we're doing phenomenally well on it. But, yes, it can be hard. If you have capital, you need a place. Yeah. How do folks find you? Matt, go to the website pitchenny.com. I'm sure you'll put a link in the show notes, but I'll spell it real quick. It's P, like in Peter I-C-H-E-N y.com. You can find a link to learn more about the book there you can read the blog like you said. I've got a newsletter that I sent out every month. It's got information and investment tips and tricks and things like that. So that's all right there on paceni.com. I really appreciate it. Not pachenny everyone. Definitely check it out. He's got some great material on the site. All the best Matt Congratulations on the success and best of luck moving forward. Thanks for having me on the show. It was really fun talking with you today. Yeah, it was a blast. I appreciate you coming on. It's always great to connect with like minded folks so I appreciate the chat. Awesome. Thanks. Take care everyone as always, please stay safe.